Economic progress, social justice, individual liberty

Menu

Trade Unions, social justice and economic performance

Trade Union membership has been in decline across much of the west in recent decades, a trend which is generally welcomed by the right and lamented by the left. The gradual fall in employment in manufacturing and the public sector as a result of deindustrialisation and privatisation have contributed to this phenomenon. But do trade unions have a role to play in not only promoting workers’ rights and decent wages, but also in improving economic performance?

In the UK during the 1980s under Prime Minister Margaret Thatcher, Trade Unions were seen as an obstacle to economic efficiency. The ‘hold-up problem’ in economics suggested that unions and management in industry were failing to cooperate over the returns to production (wages and profits) since management were concerned that over-mighty unions would bargain for too large a share of the total income from production, thus reducing the profits available for future investment. If this occurred, investment, output and productivity would grow more slowly than otherwise, harming economic performance.

The Thatcher governments made it a priority to reduce union power and influence. Mass unemployment weakened their bargaining power in the labour market, alongside privatisation and a raft of new labour laws, and ultimately proved successful in achieving this goal. But in other northern and central European countries, such as Germany and Austria, as well as Norway, Finland, Sweden and Denmark, unions have maintained a greater influence in society, seemingly without harming the economy. Some of those on the British left have looked abroad for policies which could involve unions in the promotion of social justice as well as improved economic performance. In my view this development is a positive move for those seeking ideas for a successful social democratic politics. One can be sympathetic to the union goal of promoting social justice in the labour market, while decrying the militant nature of some of their leaders, whose radical ideas involve transforming society in a socialist direction rather than working as social partners under capitalism. The experience of the European countries mentioned above suggest that the latter goal would be more fruitful.

In economic theory, managers and workers have a mutual interest in increasing the production of value in the workplace. Only rising productivity and output can create the resources needed for both profits and wages to increase. Both sides therefore have an incentive to cooperate over production. But there is also the potential for an asymmetry (one-sidedness) in the balance of power between them, in either direction. Workers may gain from higher wages in the short run if they have a high level of bargaining power, but if this takes place when output is stagnating or falling, profits and investment will suffer, as described already. This will undermine production and may ultimately lead to the particular firm or industry failing, with unemployment the result.

If management have more power in the workplace, they may be able to keep wages relatively low in order to maintain profits. The latter can potentially fund future investment and if this is successful in raising productivity, wages could potentially rise too, benefiting workers beyond the short run.

Having said this, if workers’ bargaining power remains weak across many industries, then stagnating wages relative to productivity over the longer term could reduce the growth of consumption and firms’ incentive to invest. This would harm economic performance.

Union influence over wages and working conditions might also force firms to compete via a ‘high road’ of product and process innovation, rather than through simply boosting profits by reducing employment. Of course, structural change in the economy may make the latter process inevitable at times for particular firms and sectors. What is needed is union involvement in such decisions, recognising that such changes need to be managed carefully so that displaced workers have access to any necessary retraining and relocation to assist them in finding new jobs. These sorts of policies require a lead from government, but because they can reduce the downsides to this kind of economic change, workers and their unions may be less resistant to it, encouraging cooperation rather than conflict in the workplace, and making structural change a more positive economic force for the majority.

So management and workers have, on the one hand, incentives to cooperate in the workplace, but they also face potential conflict over the distribution of income from production sold in the marketplace. This would suggest that there is a role for trade unions as social partners in production under capitalism, to encourage both efficiency and social justice. This may sometimes lead to conflict, but experience in some continental European countries shows that prosperity can be sustained even with strong union influence in the workplace.

In the UK, there are large parts of the labour force which lack effective representation and suffer from insecurity, low wages and poor working conditions. Unions should be encouraged to recruit from new business sectors and, rather than acting as the shock troops aiming for socialist revolution, can provide a countervailing power to employers in the labour market and trumpet forms of cooperation and conflict resolution which promote economic success and social justice.

Post navigation

2 thoughts on “Trade Unions, social justice and economic performance”

Thanks for this excellent article. There are natural differences of interest between capital and labour. They can only be reconciled satisfactorily when both sides are strong negotiating parties. Therefore, organising labour interests is absolutely vital; however, it appears more difficult nowadays to organise the political power of labour — paradoxically, largely as a result of labour’s success in demanding a more comprehensive welfare state, which, I surmise, has contributed to the atomisation and destruction of “class”-conscious communities, ranging from the workers’ family and neighbourhood to the national labour movement — as I argue in this post in my blog, which your vast German speaking audience will surely appreciate.

Thanks for your comment. That is an interesting idea re the welfare state. I have read that such successes, which might also include workers’ rights becoming law as well as the welfare state, may have made trade unions less necessary. Having said that, right wing political parties often look to undermine such regulations on the alter of ‘flexibility’, so things can move backwards. And labour has been weakened by economic developments and policies, particularly in the UK since the 1980s. So there is room for labour movements to improve the lot of the ordinary worker in today’s increasingly ‘flexible’, ‘new’ economy. They need to move beyond their more recent bases to recruit more widely from new and growing sectors. But some of their leaders seem to be still fighting yesterday’s battles, and looking to protect jobs rather than work more cooperatively and make structural change in the economy a more positive experience for the many who can suffer from it.

About Me

I have an MSc in development economics from SOAS, University of London and, while I now work for a charity, I remain passionately interested in the subject and how it can be used to promote sustainable human progress.
Apart from economics, I enjoy reading, walking, Qi Gong exercise, classical music, following professional tennis and athletics and spending time with friends and family. I also take an interest in politics, usually focussing on policy rather than personality, so that I don’t get too fed up with it.